The U.S. military is funding a massive protection racket in Afghanistan, indirectly paying tens of millions of dollars to warlords, corrupt public officials and the Taliban to ensure safe passage of its supply convoys throughout the country, according to congressional investigators.

The security arrangements, part of a $2.16 billion transport contract, violate laws on the use of private contractors, as well as Defense Department regulations, and "dramatically undermine" larger U.S. objectives of curtailing corruption and strengthening effective governance in Afghanistan, a report released late Monday said.

The report describes a Defense Department that is well aware that some of the money paid to contractors winds up in the hands of warlords and insurgents. Military logisticians on the ground are focused on getting supplies where they are needed and have "virtually no understanding of how security is actually provided" for the local truck convoys that transport more than 70 percent of all goods and materials used by U.S. troops. Alarms raised by prime trucking contractors were met by the military "with indifference and inaction," the report said.

"The findings of this report range from sobering to shocking," Rep. John F. Tierney (D-Mass.) wrote in an introduction to the 79-page report, titled "Warlord, Inc.: Extortion and Corruption Along the U.S. Supply Chain in Afghanistan."

The transport contract "has fueled warlordism, extortion, corruption, and maybe even funded the enemy," Tierney said Tuesday in a House subcommittee hearing on the issue. "U.S. taxpayer dollars are feeding a protection racket in Afghanistan that would make Tony Soprano proud."

The report comes as the number of U.S. casualties is rising in the Afghan war, and public and congressional support is declining. The administration has been on the defensive in recent weeks, insisting that the slow progress of anti-Taliban offensives in Helmand province and the city of Kandahar does not mean that more time is needed to assess whether President Obama's strategy is working.

"I think it's much too early to draw a negative conclusion," said a senior administration official, speaking on the condition of anonymity to discuss internal deliberations. "I think there's more positive than negative. We're heading toward a year-end assessment, which will be a big one for us." The review was set when Obama announced in December that he would send an additional 30,000 troops to Afghanistan and begin to withdraw them in July 2011.

Tierney is chairman of the national security subcommittee of the House Committee on Oversight and Government Reform, whose majority staff spent six months preparing the report. A proponent of a smaller U.S. military footprint in Afghanistan and targeted attacks on insurgents, Tierney said in an interview Monday that he hopes the report will help members of Congress "analyze whether they think this is the most effective way to go about dealing with terrorism. Or the most cost-effective way."

The report's conclusions were introduced at a hearing Tuesday of the national security subcommittee. Senior military and civilian logistics officials, as well as independent defense experts, were on hand to testify. According to the report, all evidence and findings were made available to Republicans on the subcommittee.

In an opening statement, Tierney told the panel that the investigation unveiled the Pentagon's "systematic failure of management and oversight of contractors along the Afghan supply chain." He said the practice of using civilian contractors instead of military personnel to move food, water, ammunition, weapons and fuel to U.S. military bases and outposts across Afghanistan started out as a "cost-effective expediency" but soon "morphed into an institutionalized reliance and a dangerous shortcut."

The result is that in Afghanistan today, Tierney said, "we have roughly 90,000 troops but reportedly use almost 110,000 contractors."

He warned, "The combination of a massive increase in contracting and insufficient management and oversight capability is a recipe for disaster." He disputed assertions that the funding of warlords and possibly insurgents in Afghanistan mirrors the largely successful "Anbar Awakening" strategy of coopting insurgents in Iraq.

"Blindly funding warlordism, extortion and corruption in Afghanistan through multiple layers of invisible subcontracting is no 'Anbar Awakening,' " Tierney said. "If the Department of Defense wants to coopt warlords, strongmen or insurgents with U.S. taxpayer dollars, military commanders in the field need to take direct responsibility for those relationships in order to ensure absolute accountability."

In testimony shortly after Obama's strategy announcement, Secretary of State Hillary Rodham Clinton said that "much of the corruption" in Afghanistan has been fueled by billions of dollars' worth of foreign money spent there, "and one of the major sources of funding for the Taliban is the protection money."

Military officials said that they have begun several corruption investigations in Afghanistan and that a task force has been named, headed by Navy Rear Adm. Kathleen Dussault, director of logistics and supply operations for the chief of naval operations and former head of the Baghdad-based joint contracting command for Iraq and Afghanistan.

Rear Adm. Gregory J. Smith, communications chief for U.S. and NATO forces in Kabul, said that the entire Tierney report has not been examined but that Dussault will be "reviewing every aspect of our contracting process and recommending changes to avoid our contribution to what is arguably a major source of revenue that feeds the cycle of corruption."

The U.S. military imports virtually everything it uses in Afghanistan by road through Pakistan or Central Asia to distribution hubs at Bagram air base north of Kabul and a similar base outside Kandahar. From there, containers are loaded onto trucks provided by Afghan contractors under the $2.16 billion Host Nation Trucking contract. Unlike in the Iraq war, the security and vast majority of the trucks are provided by Afghans, a difference that Army Gen. Stanley A. McChrystal, the top U.S. and NATO commander in Afghanistan, has praised as promoting local entrepreneurship.

The trucks distribute the material to more than 200 U.S. military outposts across Afghanistan, most of them in the southern and eastern parts of the country where roads are largely controlled by warlords and insurgent groups.

The report found no direct evidence of payoffs to the Taliban, but one trucking program manager estimated that $1.6 million to $2 million per week goes to the insurgents.

Most of the eight companies approved for the contract are Afghan-owned, but they serve largely as brokers for subcontractors that provide the trucks and security for the convoys, which often contain hundreds of vehicles. According to the congressional report, the U.S. officers charged with supervising the deliveries never travel off bases to determine how the system works or to ensure that U.S. laws and regulations are followed.

The report describes a system in which subcontractors -- most of them well-known warlords who maintain their own militias -- charge $1,500 to $15,000 per truck to supply guards and help secure safe passage through territory they control. The most powerful of them, known as Commander Ruhullah, controls passage along Highway One, the principal route between Kabul and Kandahar, under the auspices of Watan Risk Management, a company owned by two of Afghan President Hamid Karzai's cousins.

Overall management of who wins the security subcontracts, it said, is often controlled by local political powerbrokers such as Karzai's half brother, Ahmed Wali Karzai, head of the Kandahar provincial council.

Relatively unknown before U.S. forces arrived in Afghanistan in fall 2001, Ruhullah is "prototypical of a new class of warlord in Afghanistan," the report said. Unlike more traditional warlords, he has no political aspirations or tribal standing but "commands a small army of over 600 guards."

The "single largest security provider for the U.S. supply chain in Afghanistan," Ruhullah "readily admits to bribing governors, police chiefs and army generals," the report said. In a meeting with congressional investigators in Dubai, he complained about "the high cost of ammunition in Afghanistan -- he says he spends $1.5 million per month on rounds for an arsenal that includes AK-47s, heavy machine guns and RPGs," or rocket-propelled grenades. It added: "Villagers along the road refer to him as 'the Butcher.' " Despite his "critical role," the report said, "nobody from the Department of Defense or the U.S. intelligence community has ever met with him," other than special operations forces who have twice arrested and released him, and he "is largely a mystery to both the U.S. government and the contractors that employ his services."

Defense regulations and laws promulgated following difficulties with private security contractors in Iraq limit the weaponry that contractors can use and require detailed incident reports every time shots are fired. But such reports are rarely, if ever, filed, investigators said.

Another trucking contractor described a "symbiotic" relationship between security providers such as Ruhullah and the Taliban, whose fighters operate in the same space, and said that the Taliban is paid not to cause trouble for the convoys. "Many firefights are really negotiations over the fee," the report said.

Among its recommendations, the report calls on the military to establish "a direct line of authority and accountability over the private security companies that guard the supply chain" and to provide "the personnel and resources required to manage and oversee its trucking and security contracts in Afghanistan."